European Opportunities 27 November 2024

European Opportunities Trust (EOT) is a high conviction, pan-European portfolio of 28 companies that the manager believes have special or enduring qualities. The team focus on growth companies with global revenues that don’t necessarily correlate with the country of listing. Thus, the portfolio tends to favour the healthcare, industrials and technology sectors that have been successful in the global economy.

Alexander Darwall has managed EOT since inception in 2000. He has a significant personal holding, as do his colleagues. Previously working at Jupiter, Devon Equity Management was founded in 2019 by Alexander and a group of colleagues, including co-manager Luca Emo. Devon’s sole focus is on pan-European equities.

EOT’s NAV and share price total return of c. 16% and 8% respectively over the last five years compare to figures of c. 40% and c. 38% for the Morningstar Europe peer group NAV TR and the benchmark respectively. Over ten years, EOT's NAV total return of 130% compares to the peer group’s 142% and the benchmark’s 108%. In the Performance section we examine this underperformance more closely, and highlight that only two poor years have contributed to this underperformance.

EOT's discount of c. 13% is wider than the peer group average of 10%. In January 2024 EOT’s board executed a tender offer for 25% of shares, priced at 98% of NAV less costs, returning £227m to shareholders. Adding share buybacks, the board has returned £299m to shareholders in 2024.

EOT is currently geared c. 6%, following a period where Gearing was reduced to zero. While the team don’t try to time markets, gearing is used tactically when the team believe the risk / reward ratio is favourable. EOT is primarily targeting capital growth and pays a small annual dividend in line with its obligations as an investment trust, and currently yields c. 0.24%.

One of the reasons for EOR’s wider-than-average discount may be weak sentiment related to the potential impact of US trade tariffs. The team highlights that things may not necessarily be as clear cut and negative for the unique set of companies that EOT owns. They offer the example of Novo Nordisk, EOT’s largest holding, which has for many years manufactured products in the US. So, while the precise shape of tariffs isn’t yet known, the reality may be more complex than a blanket tariff for all European companies. In the short-term though, as the market tries to calculate what the rhetoric really means, investors should expect volatility, which may present opportunities.

EOT’s portfolio and returns are highly idiosyncratic. Statistics in the Performance section show that EOT contributes to portfolio diversification through a combination of its highly active portfolio and its significant UK weighting. This provides something of a hedge for EOT’s relative performance within the peer group, should the UK get a different result to the rest of Europe with regard to US tariffs. Ultimately, EOT offers exposure to world-leading businesses, but without the valuation premium that being listed in the US brings.

The team are significant personal investors in the trust, and there is a conditional performance-linked tender offer in 2026 for 25% of shares. The current discount to NAV may provide an opportunity to own a very differentiated portfolio, put together by a team who take the long-term view. This may not protect investors from further volatility over the short term, but the potential for strong share price returns over the medium term is there.